Florida Attorney General Pam Bondis refusal to push for mandatory mortgage principal reductions as part of a multistate group designed to combat foreclosure fraud is generating a protest and prayer vigil this week from Florida church leaders.
PICO United Florida, an ecumenical group of Central Florida religious leaders, will gather in the Capitol courtyard Thursday to protest Bondis stance.
When Pam Bondi was running for attorney general she touched on the fact that a lot of Floridians had lost their homes, said Rev. Errol Thompson of New Fellowship Baptist Church in Orlando, and one of the leaders of PICO. But once she became attorney general it appears that shes backing away from this.
Thompson is taking issue with the stance Bondi and the attorneys general of Texas, Virginia and South Carolina have taken against using the Mortgage Foreclosure Multistate Group to force mortgage servicers to reduce the principal on loans to financially troubled homeowners.
The group, headed by Iowa Attorney General Tom Miller, began investigating the shady dealings of mortgage servicers and foreclosure firms in October 2010 in the aftermath of the robo-signing controversy, in which law firms hired by mortgage companies used faulty and fraudulent paperwork to churn out foreclosures. As part of their investigation, the group issued a term sheet in March to five major banks that included automatic reviews of mortgage modifications and principal reductions in some cases.
Bondi and her colleagues sent a letter Sunday to Miller expressing their concerns over the term sheet, which they say extends beyond the scope of the groups intention to clamp down on fraudulent activities and amounts to dictating best practices to private industry.
We are particularly concerned that the term sheet appears to propose government-imposed solutions to problems in the financial markets that the investigation was never intended to address. As some of us have expressed to you and your staff in the past, we remain troubled that the term sheet proposes to impose heightened loss mitigation requirements and forced principal reductions on mortgage servicers, the letter reads in part.
As the burst of the housing bubble hit Floridas large second-home market particularly hard, leading to the deep recession, a wave of foreclosures hit the state, with 485,286 foreclosure filings in 2010, according to RealtyTrac, a California-based company that tracks foreclosed properties.
The robo-signing controversy has exacerbated the problem, leaving many cases in limbo and weighing down Floridas court system. The letter from Bondi and the other attorneys general cites the added delay of foreclosure court cases that would result if principal reductions were imposed on mortgage servicers. According to JP Morgan Chase, it takes an average of 678 days for a foreclosure case to make it through the system in Florida.
But what the church leaders of PICO are most upset about is Bondis reference to the potential moral hazard caused by imposing principal loan reductions, since the qualifications for those reductions are vague.
As a result, the term sheets principal reduction proposals may actually foster an unintended moral hazard that rewards those who simply choose not to pay their mortgage -- because they can simply take advantage of lenders obligation to honor virtually automatic principal write-downs, the letter states.
Rev. Thompson thinks that argument excuses Bondi and the other attorneys general from properly going after the banks to make sure that people stay in their homes. Homeowners are emptying their savings and 401(k)s attempting to keep their homes, but banks arent meeting them halfway, he said.
Our hope is that she will recant the whole piece on moral hazard, Thompson said. We certainly want to see that she takes a lead like she said she would.
For her part, Bondi wants to aggressively deal with mortgage companies and clamp down on fraud, but doesnt want to cause unnecessary delays in getting Floridas housing market back to a sense of normalcy.
Attorney General Bondis goal for these negotiations is to remedy the unlawful practices that prompted our investigation, while being careful not to exacerbate the foreclosure crisis that is already affecting so many people across the country, said Jennifer Davis, deputy communications director for Bondi.
Reach Gray Rohrer at grohrer@sunshinestatenews.com or at (850) 727-0859.
